The S&P 500 lost four percent today in a fast but surprisingly orderly retreat. The worst losses were accumulated by the consumer discretionary (-6.6%) and consumer staples (-6.4%) sectors after Target (24.9%) fueled margin concerns this morning.
The VIX finally gained some momentum again and closed 4.8 points higher at 40 percent, but the pop was still muted relative to the sharp drop of the market as we estimate the “fair” gain should be closer to 6.4 points.
While yesterday afternoon Powell himself was telegraphing the Fed’s intent to destruct demand, today it was Harker’s turn after the close, and it should be more than clear to every investor by now that the central bank WILL follow through with its “controlled demolition” of risk assets.
We have been driving this point home since February now and might sound like a broken record, but we think it is very important to understand that the sell-off is not a bug, but a feature by design.
Gamma discussion:
Volume was high at sub-3900 strikes and we might very well see a good increase in open interest tomorrow when fresh data gets released.
3900 is a logical support level from here, but given the dynamic sell-off through the strong support at 4000 we think there is a high probability that the market is retreating to new yearly lows.
Below 3900 minor support levels can be identified at 3875 and 3850 before 3800 comes into play.
We do not think the market will go much lower though, because between 3800 and 3750 the curve flattens out substantially. In English this means that option dealers have no need to sell more futures as the gamma adjustments fall to zero.
The VIX finally gained some momentum again and closed 4.8 points higher at 40 percent, but the pop was still muted relative to the sharp drop of the market as we estimate the “fair” gain should be closer to 6.4 points.
While yesterday afternoon Powell himself was telegraphing the Fed’s intent to destruct demand, today it was Harker’s turn after the close, and it should be more than clear to every investor by now that the central bank WILL follow through with its “controlled demolition” of risk assets.
We have been driving this point home since February now and might sound like a broken record, but we think it is very important to understand that the sell-off is not a bug, but a feature by design.
Gamma discussion:
Volume was high at sub-3900 strikes and we might very well see a good increase in open interest tomorrow when fresh data gets released.
3900 is a logical support level from here, but given the dynamic sell-off through the strong support at 4000 we think there is a high probability that the market is retreating to new yearly lows.
Below 3900 minor support levels can be identified at 3875 and 3850 before 3800 comes into play.
We do not think the market will go much lower though, because between 3800 and 3750 the curve flattens out substantially. In English this means that option dealers have no need to sell more futures as the gamma adjustments fall to zero.